Currency

ABOUT CURRENCY

• A currency is a unit of exchange that is used to facilitate transactions between countries and regions.

• Currency can exist in both physical and digital forms, with physical currency, including coins and banknotes, while digital currency may be represented electronically in bank accounts and payment systems.

• Before the concept of currency was introduced, goods and services were exchanged for other goods and services under the barter system.

CURRENCY VS. MONEY

• Money and currency are interrelated but different terms. Currency is one form of money. 

• Money represents the value of goods and services, whereas currency is the medium used to exchange that value.

• Often issued by a government, it is one type of payment that people can use within a jurisdiction. Money, however, refers more broadly to a system of perceived value which allows for the exchange of goods and services.

FACTORS AFFECTING CURRENCY

• Interest Rates. 

Currencies of countries offering higher interest rates tend to increase in value, all else being equal. This is because fixed-income investors flock to higher interest rates, which increases the currency’s demand and value.

• Economic Health. 

The overall health of an economy can influence the demand for a currency, which can have an impact on its value. Some economic indicators that traders monitor are GDP growth, inflation rates, and employment figures.

• Capital Flow. 

Capital flow represents a large portion of the demand for currency. Large amounts of capital inflow going into a country appreciate the currency, while capital outflow depreciates the currency.

• Money Supply. 

Money supply refers to the money within a country at a given point in time. The higher the money supply, the lower the currency value and vice versa.

• Market Sentiment. 

As the forex market is decentralised with no single entity controlling it, the value of currencies is driven by supply and demand. The overall mood and sentiment of the market can therefore impact currency value.